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3/15/2012 HR BATCH- 2010/12

Compensation-Bharat Forge:
The following factors should be taken into consideration while framing the compensation strategies at Bharat forge for different countries: Consistent link between rewards and results Consistent position vs. market Internal equity (comparability of opportunity) Reviewing of Job Descriptions across the organizations to achieve at a common ground. Consistent link between rewards and behaviour Improved governance of rewards (stronger oversight) Common culture Talent mobility Reduced administrative costs

China:
In December 2005 Bharat forge made a huge entrance in China when it signed a JV with FAW Corporation, the largest automotive group in China. The forging company of FAW group is the largest in China and by joining hands with them; Bharat Forge instantly became the largest forging company in China. In China differences in pay and reward systems are associated with differences in the governance and ownership. In general, pay packages provided in state-owned enterprises emphasize services, benefit allowances (housing, food, healthcare, childcare, etc.), and relatively lower cash. China due to its low labour costs is the preferred destination for multinational companies. The hourly compensation costs in China are around 2% of that in Germany. Another reason for the low labour costs is the inefficiency of workers unions in China. The unions are mainly controlled by the ruling communist party and are impotent when it comes to representing workers. In terms of paid leaves there is no particular expectation as far as Chinese labourers are concerned the situation is similar and flexible as in case of India. Thus Bharat forge can save costs on blue collar labourers in China but when it comes to managerial positions the costs can go up due to reasons such as unavailability of resources etc. Differing from many other countries, organizations here have very aggressive expansion plans for their business in China. Leadership development is one of the top themes, because China lacks qualified leaders and talent. Another idea can be total rewards, which should focus more on non-cash components such as work/life balance and development and learning.

Managing employee expectations is going to vary by sector and location. In the high-growth market, it will be difficult to restrain expectations. Many companies are in this mode already; their key communication messages include: Focus on people's efforts and the company's bright future Emphasize productivity and pay for performance Introduce the total rewards concept and the focus on talent development

Cash is first, such as retention and deferred bonuses. Also popular are career planning, including job rotation and leadership development programs, and supplemental medical and pension plans; other benefits, such as education and car benefits, are also on the rise

US:
The challenge with US companies is that the salaries of Managers and senior management are extremely high. The salaries in US can go up-to 400 times that of the average manufacturing employees pay. Thus apart from huge disparity in pay a lot of cost in involved in paying the employees. Also the US expatriates are expected to pay taxes on their global income so companies ensure a higher income to cover these factors. The company needs to pay employees as per housing cost and cost of living in US keeping in mind the international compensation norms. There is a tug of war between limited resources and the need to retain critical employees recognizing top performance is still clearly a driving factor. Differentiating salary increases among employee groups is a necessity, as it allows employers to make investments in those employees who will advance the organization. To that end, the gap between high-performing employees and those in the lower performing categories is widening significantly. Employees desire a straightforward message about their companys business prospects and their role in its success. Companies need to remain realistic, deliver simple messages and use all of the communication tools available to rebuild engagement. Both cash and noncash (career planning, training, work/life) communication messages will help reduce postrecessionary flight. The risk of losing key employees is top of mind as the economy recovers and certain labour markets improve. And while non-monetary awards such as career development and training are effective in retaining employees, employers realize that top-performing employees may resent going another year without a pay increase. Companies should do well to balance all levers of total rewards and deliver holistic value propositions to their employees.

India:
In India the unions are play an important role particularly in the manufacturing sector. Since Bharat Forge is an Indian organization so the compensation practices are relatively neat in

India. To become competitive in the Indian market the focus should be moved to performance based pay which is not yet followed in a large way in India. There will be a strong focus on the overall value proposition to support retention, and high potentials will be the subject of increasingly targeted strategies. Total reward strategies should be reviewed, now that the tax benefits of packaging are extremely limited in India. Following strategies can be implemented: Use all reward levers available; cash compensation is not the only way to encourage employee engagement. Consider creating career paths to provide development opportunities. Alternatively, employ special project opportunities that elevate an employees corporate visibility and develop new skills that enhance employment security.

Germany:
Following are parameters to be noted while designing pay system in Germany- (Ref- Mercer compensation standards). Types Short term incentives Not Prevalent Mandated Occasional Common Prevalent Y Notes Range from 58% to 98% for all levels. 30 paid days of vacation. Eg Christmas and vacation payments done. Not common Not common

Supplementary Discretionary vacation allowance Additional Salary payment

Transportation Y allowance Meal Y allowances and other cash allowances. Practices-

1. Minimum wages- There is no statutory minimum wages as per law. It varies as per industry and according to different collective agreements.

2. Determination of salary increases- Annually. Reviews occur in Jan or April. Salary increases are not mandatory but depend on industry and company performance. 3. Pay structure Most firms use Job Evaluation systems and market data to determine salary ranges. Severance pay in Germany is upto a months salary per year for number of years served. In Germany, the CEOs are not paid as exorbitant as in US. The rate is approximately 12 times what an average worker gets.

Sweden and Scotland:

Sweden is an egalitarian society; they have highest number of paid vacations approximating to 30 per year. As far as severance pay is concerned, in case of Scotland it may go upto 2 years of salary. Again the CEO packages are around the ratio of 12-13 and not very high like in US.

Conclusion:
Hence it becomes imperative for Bharat Forge to align the compensation strategy with all these acquired units. The best would be to converge at certain points like Job evaluations, compiling JDs for all locations for all common positions, Job grades, Compensation philosophy and strategy etc. And diverge on certain aspects like paying as per the local market rates, ratio of fixed to variable can be varied as per country. Number of sick days, severance package, and retirement benefits can be instituted for each location as per statutory law of that country. Post integration with the acquired firms, there could be a possibility that some jobs might be deemed redundant. HR has to design a scheme that is fair, transparent, reflects the business strategy and is cost effective. The rewards should be linked to the business goals. Instead of superimposing their job grades and structures on the acquired firm, the company can build common models from scratch. And the idea is also that same set of employees across locations should get the same set /similar set of benefits. Company can also choose a middle path, there they stay divergent but also remain convergent at core. This is by customising few features and practices as per local tastes and keeping core structure and philosophy common. Cafeteria approaches have worked well in such cases, esp in case of Merger of Astra and Zeneca where such method was adopted. On a whole - overall, the wage bill should not increase and motivation levels too should not dip!